Explained: Why could a weak monsoon derail India's ambitious ethanol blending programme?
India's ambition to replace as much as imported fuel as possible with biofuel made in the country is seeing a dent as monsoon this time around has been the lowest in more than a decade. This has now forced the central government to make food security its main concern ahead of production of ethanol.
Although India has opted for E20 petrol, the proportion of ethanol being produced this year is expected to drop below the 20% mark, Reuters reported citing industry insiders. Thus, this will reverse the gains which were made after the central government managed to achieve the milestone five years before schedule.
E20 is one of the signature energy-security programmes of Prime Minister Narendra Modi and Minister of Road Transport and Highways Nitin Gadkari, but it looks like it will be undermined owing to the low rainfall India has seen this year, making the country rely more on overseas crude during a time whengeopolitical uncertainty is driving up energy prices.
As per government data, the E20 initiative has managed to save around $21.1 billion) in oil imports since 2014, when Modi first came to power.
El Nino dashes Modi's plans
It was a severe El Niño this year that dented Modi's plans as India's monsoon rainfall went down by nearly 13% from normal levels, and concerns about crop shortages sent corn and sugar soaring some 40% to hit record highs, while rice, which is another ethanol feedstock, climbed 20%. Retail food inflation accelerated to 7.74% in September from 5.97% a month earlier.
The scarcity of feedstocks could push India's ethanol blending rate down to around 15% in the current supply year from the previous period's 20%, G.K. Sood, chairman of agribusiness company KN Agri Resources and one of India's top food policy experts, told Reuters.
"India is the world's most populous country, so food has to take priority over fuel, more so in a drought year," he said.
Although India has ample stockpiles of rice which can be an alternative to corn and sugar, it would be expensive for the government, as it sells the grain to producers of ethanol at half the price it pays to buy and store it.
Distilleries under pressure
With lower bending, producers who borrowed heavily in order to expand their capacity to about 20 billion litres a year in anticipation of rising ethanol demand would be squeezed, since this will result in considerable overcapacity.
Food inflation is a politically sensitive topic with several states due to hold assembly elections in early 2027, including Uttar Pradesh, the country's most populous.
Ethanol producers have increasingly turned to damaged grains to make the biofuel, which has raised worries about animal feed availability, said C.K. Jain, president of the Grain Ethanol Manufacturers Association, to Reuters.